Apple Signs Off on Spotify. When Will Big Music Play Along? [MediaMemo]
Spotify is the best music service you’ve never used. That’s because the much-hyped streaming music service is only available in Europe, and for a select few in the U.S. who have either gotten sneak peaks or hacked their computers to get their hands on it.
The service took one step toward wider distribution today, when Apple (AAPL) approved its iPhone app (for a glimpse at the app, see the video at the bottom of this post). But that still won’t help U.S. users until the big music labels — Warner Music Group (WMG), Sony (SNE), EMI and Universal Music Group – agree to American distribution deals.
But before we get to that, let’s back up and explain what Spotify is: A streaming music service that lets you listen to whatever you want, whenever you want, as long as you have a Web connection. A free version comes with ads, and if you want to do away with those, you can pay for a subscription.
Does that sound familiar? It should. There are plenty of versions of available like that in the U.S. right now, from RealNetworks’ Rhapsody (RNWK), to MySpace Music, a joint venture owned by News Corp.’s (NWS) social network and the big labels. For various reasons, equivalent (and legal) versions have been much harder to come by in Europe, which explains part of the appeal there. The other explanation is that Spotify works beautifully.
But don’t take my word for it. Ask Slate.com columnist Farhad Manjoo (”The best streaming music service in the world”). Or better yet, Facebook CEO Mark Zuckerberg (”Spotify is so good”).
Meanwhile, investors — primarily European ones – have been throwing money at Spotify, and the big music labels’ international arms are enthusiastic partners (and equity shareholders). And the company’s boosters have been pointing to a U.S. launch as early as the fourth quarter of this year.
So let’s assume that happens. What then? The problem with the digital music business, as company after company has found out, is that it’s a miserable business. Selling music by the track is a low margin affair that only works if you have enormous scale (Apple sells some 2 billion songs a year). It’s nearly impossible to get more than a few hundred thousand people to pay a monthly fee for music (ask Rhapsody or Best Buy’s Napster (BBY), who have been slogging away at this for years without gaining any traction).
So why will Spotify be any different? Depends on who you ask. Some figure that the service has the best chance at working as a mobile service, and that since phone users aren’t used to the idea of getting all the music they can eat on their phones for free, that they’ll pay up if given the chance. Others think that the big labels have gotten wiser and/or more benevolent about their licensing fees, and are willing to wring less out of Spotify at the start, in the hope that it will pay off down the road.
Others just shrug, and figure it will work out somehow, because… well, one of these days, someone has to figure out how to make this work. “Everybody loves the product,” says an industry executive familiar with the company’s plans. “And there’s a hope that the business model is realistic.”
I have heard rumbling that not every one of the big labels is equally enthusiastic about a U.S. licensing deal. It’s unclear whether that’s due to something specific about the U.S. market, or internecine squabbles at particular labels. But Spotify will need at least three of the big four to play along. And then we can see just how realistic the model really is.
